Optimal term length for an overconfident central banker

Etienne Farvaque and Norimichi Matsueda

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Abstract: This paper discusses the implications of overconfidence when it affects a monetary policy maker. We consider two forms of overconfidence: the illusion of precision and the illusion of control. Incorporating them into a standard New Keynesian framework, we consider the optimal term length of a central banker and examine how it depends on the types and degrees of overconfidence. In particular, we show that the legal mandate should always be lengthened when these two types of biases increase by the same percentage magnitude.

Keywords: Central banker; overconfidence; legal mandate; optimal term length (search for similar items in EconPapers)
Date: 2017-03
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Published in The Singapore Economic Review, 2017, 62 (01), pp.179--192. ⟨10.1142/s0217590816500107⟩

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Related works:
Journal Article: OPTIMAL TERM LENGTH FOR AN OVERCONFIDENT CENTRAL BANKER (2017)
Working Paper: Optimal Term Length for an Overconfident Central Banker (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01533519

DOI: 10.1142/s0217590816500107

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